BlackRock has announced the launch of the BlackRock BFM Brown to Green Materials Fund for UK investors, writing that it continues to provide clients with choice investment opportunities related to the transition to a low-carbon economy.
BlackRock’s Thematics and Sectors team believe that as this transition unfolds, a number of the beneficiary sectors, beyond renewables, may have been overlooked and now present attractive potential alpha generating opportunities.
The BlackRock BFM Brown to Green Materials Fund invests in companies related to materials that are essential for the low carbon transition and opportunities created by decarbonising materials supply. The materials sector includes metals and mining, cement, chemicals, steel, and construction materials.
As the transition to a low-carbon economy unfolds, the investment team believes that companies in these industries that are decarbonising are expected to benefit from a re-rating as their sustainability risks decrease, resulting in these companies commanding higher multiples. The investment team expect these companies to benefit from lower operational costs and lower decarbonising capital requirements versus higher carbon peers.
The Fund will adopt the ‘Sustainability Improvers’ label under the UK’s Sustainable Fund Disclosure (SDR) regime. To qualify for the label, in complement to an objective of maximising total returns, the Fund targets a pre-defined sustainability objective to invest in assets that have the potential to improve environmental sustainability over time, determined by the potential of those assets to meet a robust, evidence-based standard.
The Fund will apply BlackRock’s proprietary ‘SDR Improver Assessment’ methodology to the companies in which it invests in. This methodology ensures that a minimum of 70 per cent of the Fund’s total assets are invested in equity securities that contribute to the Fund’s sustainability objective and its use of a SDR sustainability improvers label.
The Fund will be managed by Evy Hambro, Olivia Markham and Hannah Johnson in BlackRock’s Thematics and Sectors team, who manage the BGF Brown to Green Materials Fund. The investment team has been managing natural resources portfolios since their formation in 1991 and thematic portfolios since 2001.
Evy Hambro, Global Head of Thematic and Sector Investing at BlackRock says:
“We are targeting what we believe to be an overlooked segment of the value chain for lower carbon technologies. Companies which are high emitters today, but that have credible plans to decarbonise, could offer a significant investment opportunity. As the theme broadens out even further, these companies leading emissions intensity reduction efforts in their industries could benefit from a first mover advantage as the low-carbon materials market develops.
“This strategy has been designed to provide clients with exposure to the Brown to Green Materials theme, recognising that what could drive share prices from here, and what could make a positive difference to the world, is what happens moving forward rather than what’s already happened.”
Olivia Markham, CFA, Managing Director and Portfolio Manager at BlackRock says:
“Materials companies that best navigate the ‘Brown to Green’ transition could benefit from a re-rating in the valuation multiples the market is willing to pay for them. We expect global adoption of lower carbon technologies will drive stronger-than expected demand growth for materials required faster than anticipated, and this will result in higher materials prices and better-than-expected earnings for producers.”
The BFM Brown to Green Materials Fund has an ongoing charges fee (OCF) of 0.92 per cent for its D share class.
The firm writes that the new Fund meets the growing demand seen from UK wealth clients, building on a similar strategy, the BGF Brown to Green Materials Fund, launched in June 2023 for European investors, which has seen assets grow to ~ USD78 million. In the first year of the fund’s launch, there have been a number of highlights:
· 88 per cent of the portfolio is invested in companies on track with some or all of their decarbonisation goals.
· 76 per cent of the portfolio is invested in companies with targets to reduce emissions intensity by over 20 per cent in the medium-term.
· 6.4 per cent reduction in emissions intensity has been recorded on average from 2022 to 2023, as measured across portfolio holdings.
